Annualized Total Return

AAA

DEFINITION of 'Annualized Total Return'

The average amount of money earned by an investment each year over a given time period. An annualized total return provides only a snapshot of an investment's performance and does not give investors any indication of its volatility. Annualized total return merely provides a geometric average, rather than an arithmetic average.

INVESTOPEDIA EXPLAINS 'Annualized Total Return'

A mutual fund could earn returns varying from 3 to 5% each year and have an annualized total return of 3.995%. On the other hand, a fund could also be much more volatile, losing 3% in one year, earning 12% in another and have an annualized total return of 4.23%. The difference is the first fund would offer steady returns while the second would offer widely fluctuating returns.


Annualized Return = [(1+R1)*(1+R2)...*(1+Rn)] ^ (1/n)


Where R = annual return for a given year

RELATED TERMS
  1. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  2. Annual Return

    The return an investment provides over a period of time, expressed ...
  3. Actual Return

    The actual gain or loss of an investor. This can be expressed ...
  4. Return

    The gain or loss of a security in a particular period. The return ...
  5. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
  6. Average Annual Return - AAR

    A percentage figure used when reporting the historical return, ...
Related Articles
  1. Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  2. Mutual Funds & ETFs

    When To Sell A Mutual Fund

    Unhappy with your mutual fund's returns and thinking of investing elsewhere? Read this article first.
  3. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  4. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  5. Mutual Funds & ETFs

    Understanding Volatility Measurements

    How do you choose a fund with an optimal risk-reward combination? We teach you about standard deviation, beta and more!
  6. Retirement

    Why It Pays To Be A Lazy Investor

    Be a couch potato! This passive, but diversified, investing strategy could be for you.
  7. Mutual Funds & ETFs

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  8. Fundamental Analysis

    The Future of Big Pharma Stocks

    A look at the future health of big pharma stocks.
  9. Trading Strategies

    How to Do the Fundamental And Technical Combo Trade

    Fundamental and technical analyses should be viewed as complementary rather than competing practices. When combined, these two methods can greatly strengthen your game.
  10. Mutual Funds & ETFs

    How To Apply Technical Indicators To Mutual Funds

    Mutual funds do not readily lend themselves to technical analysis, but investors can use common indicators to evaluate mutual funds as easily as stocks.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center